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TMI Blog2013 (11) TMI 626X X X X Extracts X X X X X X X X Extracts X X X X ..... be stated thus: The main appellant (hereafter referred to as 'Nova'), against whom the duty has been confirmed, is registered with the central excise department and is engaged in the manufacture of Partially Oriented Yarn (POY), Fully Drawn Yarn (FDY) and Draw Twisted Yarn (DTY). The impugned order, which has been challenged in the present appeals, confirms the duty demands against Nova under the following heads: (i) Rs. 56,25,945/- leviable on 2,75,197.31 kgs of POY of 115/68 Denier, clandestinely manufactured and cleared by Nova to Gupta Synthetics Ltd (GSL), who in turn had processed the said POY on their Draw Twisting Machine, liable to be recovered from Nova under the first proviso to sub-section (1) of Section 11A of the Central Excise Act, 1944 (hereinafter referred to as 'the Act'); (ii) Rs. 3,93,20,685/-, leviable on 19,10,587.5 kgs of POY, during the period from March 2002 to August 2002, manufactured and clandestinely cleared by Nova, is liable to be recovered under the first proviso to sub-section (1) of Section 11A of the Act; (iii) Rs. 2,82,64,613/- leviable on 13,96,923 kgs of POY during the period from March 2002 to August 2002, manufactured and clandestinel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd date etc. A-21 is a duplicate note book maintained by V.N Parab. The entries referred to in the said note book are 'A.P Total', 'A.P Production total' and 'A.P Production day'. The said Note book has been maintained for the purpose of reporting the daily progress made in achieving the production targets, till the end of the month on cumulative basis. A-22 is a Note Book (91 pages) maintained by V.N Parab, which contains the details of Crill No and number of Crill Positions etc. The document marked as A-23 is a note book, containing 83 pages, which are serially numbered. The entries contained therein are the details of random samples, drawn from different positions of spindles of the DT machine by the Quality control department of GSL. As per the Show Cause Notice, entries in A-19 tally with the entries in A-21, entries made in Page 13 of the loose papers, compiled as A-13, are in conformity with the entries made in A-19, entries in the Note Book (A-21) are in conformity with the entries made in A-19, entries made in A-22 pertain to illicit procurement of POY of 115/68 Denier from Nova, which were subjected to Draw Twisting at GSL, and entries made in A-23 show that POY o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption of 69510.73 kgs of POY of 115/68 denier and manufacture of 65545.570 kgs of DTY of 70/68 denier during the period 1.7.2002 to 15.8.2002 by GSL. The seized quantity of 69510.73 kgs of POY of 115/68 denier has been cleared without payment of duty by Nova. A duty demand of Rs. 14,25,570/- has been demanded on the said quantity of POY. Thus a total of duty of Rs. 56,52,945/- has been demanded for the period starting from 1.6.2001 to 15.8.2002 from Nova. II. The facts narrated in the Show Cause Notice as regards the second demand of Rs. 3,93,20,685/- are as under: Diaries marked as A-296, A-297 and A-298, seized from the factory premises of Nova, form the basis of the second demand. In one of diaries, Ashok Chiripal was written and handwriting in all the three diaries was of the same person. These diaries contained details of production, captive consumption and clearance of polyester chips. There were huge variations in the entries made in the diaries when compared with the statutory records. Statement of Ashok J.Chiripal who had working with Nova as Assistant Stores Manager was also recorded. Besides Chiripals statement, statements of Anil Dhirendra Prakash Garg, General ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances refer to fictitious transport vehicles. These vehicles were not capable of carrying goods as claimed by Nova. (ii) Nova had failed to provide addresses of buyers, freight payment details, copies of purchase orders, or any other documents, to verify the genuineness of sale transactions. (iii) Ashok Chiripal's diaries do not mention about any clearance of degraded chips or waste of polymers. (iv) Seized documents (File No:A-240, A-249 and A-291) from the premises of Nova contained certain torn pages, showing stock of chips, PTA, MEG, LDO, FO etc. which are raw materials for the manufacture of polyester chips. A prima facie conclusion has been drawn from the aforesaid evidence that Nova had issued bogus invoices for sale of degraded polyester chips and waste of polymers. Cenvat credit has been taken on the inputs (PTA and MEG), used in the manufacture of polyester chips. The quantity shown as waste of polymers and degraded chips was actually used by Nova in the manufacture of POY and such POY was cleared by them without payment of duty. Thus, for a period of April-2002 to August-2002, a duty demand of Rs. 2,82,64,613/- has been made on Nova on POY, so cleared without pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CT-3 certificates from them and cleared the excisable goods against AR-3As but diverted the goods in the open market. The goods are alleged to have not reached the said EOUs. EOUs have never used the goods received from Nova for manufacturing export goods. EOUs, without receipt of duty free inputs, submitted the documents only to the jurisdictional Central Excise Officers and got the re-warehousing certificates issued which were sent to Nova. As duty was evaded by collusion between Nova and the aforesaid EOUs, the duty is liable to be recovered jointly and severally from Nova and the EOUs. Show Cause Notice, thus, proposed recovery of duty amount of Rs. 10,07,06,323/- jointly and severally from Nova and the EOUs. It also proposed imposition of penalty upon Nova and also on the EOUs. 6. Show Cause Notice dated 30.06.06 was contested by the following notices: (i) Nova (ii) Sunil Nand Kishore Gupta (Director of Nova) (iii) Jyoti Prasad Aggarwal (Director of Nova) (iv) Swastik Texturizers Pvt Ltd (100% EOU) (v) Vandevi Texturizers Pvt Ltd (100% EOU) (vi) Zakari Trading Co. (100% EOU) (vii) Goyal Industries Ltd (100% EOU) (viii) Suvidha Polyesters (100% EOU) (ix) Anga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is, however, for the entire period covered by the SCN mainly on the basis of inferences re. production referred to in A/19. Such an inference based on averages is, according to Nova, legally impermissible. It is significant that V.N Parab was, while giving his statements, asked to explain A/19. It was pointed out by Nova that not a single question seeking his clarification regarding A/21 was put to V.N Parab. 8. As regards the second demand of Rs. 3,93,20,685, Nova submitted, inter alia, that the demand is based purely on conjectures and surmises without any evidence with probative value. A/296 and A/297 allegedly show Poly Chips manufactured by Nova for captive consumption. The entry for March 2002 shows 4.97 lakh Kgs (approx.), the entry for April 2002 shows 16.49 lakh Kgs (approx.) and the entry for May 2002 shows 28.54 lakh Kgs (approx.) & so on. Such variation cannot be real and no clarification has been sought from Ashok Chiripal. The Directors have deposed to the effect that there is no system of maintenance of records by Nova in the form used in the Diaries. JP Agarwal, director of Nova, did not, in fact, agree with the statement of Ashok Chiripal. There were names of othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, good quality polyester chips. There is no evidence of consumption of polyester chips or polyester waste or actual production of 13,96,923 kgs of POY. There is no evidence of any customer, to whom Nova has sold POY. In the light of these facts and the absence of any evidence, it was the submission of Nova that the demand was not sustainable. 10. As regards the fourth demand of Rs. 10,07,06,623, Nova had made detailed submissions before the adjudicating authority. They had submitted, inter alia, that the department has not disputed the fact that re-warehousing certificates were issued by all the concerned EOUs in evidence of having received the consignment from Nova. Such re warehousing certificates were duly countersigned by the Central Excise Officers in charge of such EOUs. The enquiries as regards transport vehicles and transporters could not be evidence against Nova, when the consigned goods were re-warehoused at the EOUs. Only 8 transporters evidence was sought to be relied upon by the Revenue to substantiate the stand of the Revenue to hold that vehicles provided by or arranged by the said transporters were not used for transporting goods outside Gujarat EOUs. As regards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehalf of Balaji Exports, it was, inter alia, submitted before the adjudicating authority, that due intimation was given to the Range Office regarding receipt of goods. AR-3As received from Nova were produced before the department and the same is on record of the department. By way of additional submissions dated 23.1.2008, they had pointed out further discrepancies in the Show Cause Notice. 15. On behalf of Arya Fibres Pvt. Ltd, it was, inter alia, submitted before the adjudicating authority that demand is time-barred. Based on CT-3 certificates, Nova had supplied the required goods. Goods received by them from Nova have been used in the manufacture of export goods. Payments were made to Nova by cheques. 16. On behalf of Rolite Synthetics, it was submitted, inter alia, before the adjudicating that no duty could be demanded from them if the allegation of the Revenue is that Nova has diverted the goods in open market. Duty cannot be demanded jointly and severally. 17. On behalf of Gandhi Capital Pvt Ltd and Gandhi Fibres, it was submitted, inter alia, before the adjudicating authority that duty cannot be demanded jointly and severally. M/s Om Sai Textiles also made similar submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - under the proviso to sub-section (1) of Section 11A of the Act and has held that Nova has clandestinely manufactured and cleared POY of 115/68 denier, to GSL, who in turn had processed the said POY on the Draw twisting machine. The adjudicating authority has proceeded to confirm the duty demand on the reasoning that it could be inferred from Mohan Lal Guptas statement that on an average 1560 Kgs of DTY was manufactured by GSL per day. Purchase documents produced by GSL show only two purchases of 2084.380 Kg. Balance quantity required for manufacture of DTY was procured illicitly from Nova. Mohan Lal Gupta put his dated signature on being shown VN Parabs statement. He has not stated that VN Parab's statement was incorrect. Statement of VN Parab is, therefore, correct and admissible as evidence. Statement of VN Parab is, therefore, corroborated by the statements of Mohan Lal Gupta. Mohan Lal Gupta, on being shown A/20, put his dated signature on it and did not disagree that the details matched, which means that he has admitted them to be correct. Mohan Lal Gupta, on being shown A/21, put his dated signature thereon and said that the entries are in conformity with the entries in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own to bogus customers for the purpose of regularizing Novas account. Since Ashok Chiripal has stated that the quantities mentioned in his diaries were good quality chips, the adjudicating authority came to the conclusion that Nova did not clear degraded chips. 24. As regards the fourth and last demand, the adjudicating authority has refrained from confirming the duty demand against the EOUs and has confirmed the total duty demand of Rs. 9,77,62,573/- only against Nova under the proviso to sub-section (1) of Section 11A of the Act. Confirmation of duty demand is based mainly on the reasoning that some vehicles which have been shown by Nova for transportation of POY were incapable of transporting the goods. Further, in most of the Delivery Challans showing transportation of goods from Nova to the EOUs, signatures of the authorized signatory and of the person in the EOU are not there. Statements of the officers of Central Excise make it clear that they have not done physical verification of receipt of duty free inputs in the concerned EOUs. CBEC circular dated 2.12.1998 permits the Central Excise Officers to issue certificates without physical verification. The adjudicating authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gible reasons have been furnished by Nova while requesting for cross examination. In this regard, the ld. Senior Advocate has referred to the communications made by Nova requesting for cross examination of the witnesses. 30. As early as on 28.07.2006, Nova requested for cross examination of witnesses to examine the reliability and veracity of the evidences brought on record. By subsequent letter dated 09.09.2008, Nova had raised the issue of need and relevance of cross examination in cases like the present at the initial stage and cited several judgements in support thereof, starting with State of Kerala v K.T Shaduli Yusuff Grocery Dealer (AIR 1977 SC 1627). The names of the witnesses, whose statements had been relied upon and whose cross examination was requested for, was also indicated therein. At a personal hearing given to Nova on 15.09.2008, Nova was called upon to make elaborate submissions regarding the request made in the earlier letter in the matter of cross examination of witnesses and about the witnesses who had been named in the earlier letter. Accordingly, by its letter dated 19.09.2008, Nova classified the witnesses in six different categories for their cross-examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the submission made by Nova have been held to be not applicable since the facts and circumstances of those cases did not appear to be relevant to the facts of the present case. However, there is no discussion of any case referred to by Nova or to the facts and circumstances of those cases or even the dicta laid down in those decisions. On the contrary, the order relies upon the decision in the case of Collector v D Bhoormul (1983) 13 ELT 1546, K. Balan v GOI, (1982) 10 ELT 386 (Mad.), UOI v GTC Industries Ltd, 2003 (153) ELT 244 (SC) and Shivom Ply-N-Wood Pvt Ltd v CCE, 2004 (177) ELT 1150, and Liyakat Shah v CCE, 2000 (120) ELT 556, the last 2 decisions being those of this Tribunal. The order also relies upon judicial decisions in the matter of confessions made in statement by persons who have been examined during the investigation, as being a ground for rejecting the cross examination. In paras 56.5 to 57.27 of the impugned order, the Adjudicating Authority has reproduced the details contained in the earlier order dated 10.10.2008 by which cross examination of the witnesses had been denied. 31. The ld. Senior Advocate submits that the law on the issue of cross examination of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in. In Basudev Garg v CC, New Delhi, 2013 (294) ELT 353, the Hon'ble Delhi High Court relied upon the earlier decision in J & K Cigarettes v CCE, 2011 (22) STR 225 (Del.), and held that, insofar as general propositions are concerned, there can be no denying that when any statement is used against the assessee, an opportunity of cross examining the persons who made those statements ought to be given to the assessee. Reliance is placed on the decisions of the Hon'ble Supreme Court in Swadeshi Polytex (supra) and Lakshman Exports Ltd (supra) and to the earlier decisions of the Hon'ble Delhi High Court in J &K Cigarettes case as clinching the issue in favour of the assessee. Reference is made in the said decision to the importance of Section 9D of the Act, the validity of which was also upheld in the said decision. 32. In the above connection, the ld. Senior advocate has also submitted that, in the light of the decisions cited above, reliance in the cases referred to by the department and relied upon in the letter of 10.10.08, (and recounted in the impugned order) is not appropriate. In D Bhoormal's case (supra) what was being considered by the Hon'ble Supreme Court was the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ination is not a right, but only that it would depend on the facts of each case. During the hearing held before this Tribunal, and while replying to the submissions on this issue made before us by the ld. Senior Advocate, the learned Special Counsel for the department made reference to the recent decision of the Hon'ble Supreme Court in Telestar Travels Pvt Ltd v Special Director Enforcement, 2013 (289) ELT 3 (SC) as supporting the order rejecting cross-examination. In the said case, the Adjudicating Authority had relied upon the statements of two persons and communication received from Indian High Commission in London. These statements under reference were challenged as being inadmissible in evidence as the appellants request for an opportunity to cross examine these witnesses had been unfairly declined thereby violating the principles of natural justice. On the other hand, it was argued by the department that right of cross examination was available to a party under the Evidence Act which has no application to adjudication proceedings under the FERA and Adjudicating Rules framed thereunder. We have perused the said judgement of the Hon'ble Supreme Court and also heard the submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contrary. As far as the facts before the Hon'ble Supreme Court were concerned, production of the documents being in the nature of production of documents under Section 139 of the Evidence Act, their cross examination was prohibited by the said Section itself. In the present case, witnesses who have given the statements are not persons who were asked to produce documents under Section 139 of the Evidence Act. Their statements were recorded as witnesses. This decision, therefore, does not help the contention put forward by the learned Special Counsel. For the above reasons, we hold that there has been a denial of natural justice in the facts of the present case. The impugned order, as is evident, solely, relies on the statements of VN Parab, Mohanlal Gupta, Ashok Chiripal, and the transporters, and on the documents seized from GSL and Nova premises and explained by the witnesses whose statements were recorded. Nova had sought permission to cross-examine 63 persons for reasons which had been broadly stated by them. One could not have expected Nova to outline the scope of the questions to be put to the witnesses, when their cross-examination was sought. In the present case, as we w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and one of them, by the Hon'ble Supreme Court.. The issue of clandestine manufacture and clearance of goods arises, according to the ld.Senior Advocate, in the case of first three demands confirmed in the impugned order and has some relevance to the fourth demand as well. He, therefore, submitted that we may hear the submissions of both the parties on the said issue and, thereafter, apply the principles to facts relating to each demand. 38. In a Note submitted by the learned Senior advocate for Nova at the hearing on 29.07.2013, on clandestine clearance and how they are to be established, he has referred to some of the decisions in this regard (copies of which were compiled and filed before us). He has referred to the following cases and, in brief, made oral submissions on their contents:- (i) In Oudh Sugar Mills Ltd v Union of India, 1978 (2) ELT (J172) (SC), the Hon'ble Supreme Court, after discussing the facts before them, held that the finding that the alleged quantity of Sugar had not been accounted for has been arrived at without any tangible evidence and was based only on inferences involving unwarranted assumptions and is vitiated by an error of law. The orders of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such as evidence of other inputs required for manufacture of finished product namely Sugar, Carbon-di-Oxide being purchased and utilised in the manufacture of the final product during the period in dispute is required. There is no such evidence in the present case. There is also no evidence regarding higher electricity consumption. There is also no evidence of receipt of extra sale of goods clandestinely manufactured or removed." Dropping of the demand was upheld. This was despite documents having been recovered and statements of officials of the assessee that clandestine clearances were resorted to by the appellant. (iii) In Brims Products v CCE : 2001 (130) ELT 719, this Tribunal was considering a case where four bags of Pan Masala containing 30 Kgms each were seized for non-accountal of the same in the RG-I Register. Some loose sheets of papers were found in the dustbin, containing entries of transactions relating to pan masala. The quantity of alleged clandestine clearance was calculated based on transport company's records. This Tribunal held that clandestine manufacture and surreptitious removal is required to be proved beyond doubt by the Revenue. There was evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w material, use of electricity, sale and mode of flow back of funds, demands cannot be confirmed solely on the basis of Note Books maintained by some workers. (vi) In Hilton Tobacco v CCE, 2005 (178) ELT 378, certain private documents maintained in the factory were seized under which it appeared that the appellant had not accounted for raw material procured by him. This Tribunal held that a inference cannot be based on certain private documents only when there is no corroborative evidence recorded. Investigation had not found out at least a few buyers who had received the goods cleared clandestinely. There was no evidence of excessive consumption of electricity. When the unit was visited there was no unaccounted stock of raw material. Charges were based purely on theoretical working out based on private document which are not statutory. Relying upon the earlier decision of the Tribunal, it was decided that clandestine removal cannot be sustained. The source of procurement of raw material had not been established, buyers of finished goods had not been contacted and receipt of sale proceed had not been proved. There was, therefore, no corroborative evidence in support of the revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le evidence to show that other major raw materials had been procured without recording the same in books of accounts, this Tribunal did not accept the contention of the revenue that finished goods had been clandestinely manufactured and cleared. After referring to several earlier decisions of the Tribunal on the subject, the Tribunal held that the charge of clandestine manufacture was not established. This decision was taken by the Commissioner of Central Excise in appeal before the Hon'ble High Court of Gujarat which was dismissed by the Hon'ble High Court [2013 (287) ELT 243 (Guj.)]. The Hon'ble High Court quoted with approval paragraph Nos 12, 13 & 16 of the order of the Tribunal which were extracted, stating that from findings of the Tribunal, it is clear that the appellant had not made any clandestine manufacture which he had removed clandestinely and on which duty was payable. (viii) In CCE v Dhariwal Industries Ltd, 2012 (283) ELT 113, the department had alleged that the appellant had made clearance of Gutkha without cover of invoice and without payment of duty and the transit documents were brought back and sent along with subsequent consignments. Unaccounted quantities o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... along with equal amount of penalty and interest, against the company appellant No. 1, cannot be legally sustained and is set aside. Being aggrieved by the order, the revenue carried it in appeal to the Hon'ble Supreme Court and the same was dismissed as reported in 2003 (157) ELT A315 (SC). The ratio of the decision clearly indicated that in the case of clandestine removal it was for the revenue to substantiate the allegation of clandestine removal. (ix) In Radha Madhav Corporation Ltd v CCE, Daman, 2012 (284) ELT 369, the issue was once again raised in a case where the allegation was that there was clearance of plastic film in the guise of Lay Flat Tubing (LFT). The revenue's case was based on statements of transporters and of the Director of the main appellant. This Tribunal held that the charge of clandestine removal is to be established on the basis of preponderance of probability and not on the basis of presumptions and assumptions. It was held that, on facts, there was no sufficient cogent, unimpeachable, relevant and credible material to establish the case of clandestine manufacture and clearance. After examining the facts of the case at length, it was held that a l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the ld. Senior Advocate, are not contrary to the decisions cited by him for Nova. In the case of Gulabchand v CCE, the vehicle was intercepted carrying non duty paid goods. Unaccounted duty paid goods were found in the dealers premises and they gave statements to the effect that the goods were supplied with bills and without bills. This was not a case where there was no evidence of clandestine manufacture and clearancee. In the Umiya Chem (supra) during the course of search, shortage of finished goods was noticed when compared with RG-23A Part I register. The partner of the firm had also admitted illicit clearance. Broker's statement gave details of commissions received against sale. There was, therefore, evidence regarding illicit clearance. In the third case of Ureka Polymers, the department had obtained the statement of raw material suppliers and also of finished goods dealers. Since no regular records were maintained by the assessee to show electricity consumption, as to how much electricity was consumed, the submission of the assessee was rejected. This again was a case where there was some evidence to show manufacture and clearance, supposedly clandestine. 38. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be possible. As held by this Tribunal and Superior Courts, it would depend on the facts of each case. What one could, however, say with some certainty is that inferences cannot be drawn about such clearances merely on the basis of note books or diaries privately maintained or on mere statements of some persons, may even be responsible officials of the manufacture or even of its Directors/partners who are not even permitted to be cross-examined, as in the present case, without one or more of the evidences referred to above being present. In fact, this Bench has considered some of the case-law on the subject in Centurian Laboratories v CCE, Vadodara, 2013 (293) ELT 689. It would appear that the decision, though rendered on 3.5.2013, was reported in the issue of the ELT dated 29.7.2013, when the present case was being argued before us, perhaps, not available to the parties. However, we have, in that decision, applied the law, as laid down in the earlier cases, some of which now have been placed before us. The crux of the decision is that reliance on private/internal records maintained for internal control cannot be the sole basis for demand. There should be corroborative evidence by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Advocate has submitted that the entries made therein by V N Parab are totally vague, in as much as there is nothing therein to show that they pertains to clandestine procurement of POY and clandestine clearance of DTY. The learned Senior Advocate has also pointed out that there are discrepancies in the seized documents relied upon by the Revenue. He has further pointed out that A-21 does not even refer to the quantity of DTY produced by GSL. It is also difficult to establish that all the quantities of DTY were made out of 115/68 denier of POY. Annexure B-1 and B-2 have been prepared only on the basis of presumptions. He, further, submitted that the conclusion that A-19 and A-21 refer to the quantities being loaded in the crill is also without any evidence. There is no proof that GSL has used 100% of its capacity for production of DTY. Except for these entries, there is no substantial material to show that such a huge quantity of POY has been cleared to GSL without payment of duty and that the entire quantity has been used of production of DTY. There is no proof of purchase of such huge quantity of POY from Nova by GSL. No evidence has been led by the Revenue to show that GSL had a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Advocate has relied upon the decision of the Hon'ble Supreme Court in the case of State of Kerala v M M Mathew (1978) 4 SCC 65. He drew attention to the relevant para of the said judgement: It is now well settled that strong suspicion, strange coincidences and grave doubts cannot take place of legal proof. To establish the charges against the respondents, it was, in our judgement, essential for the prosecution to establish that the secret books of account related to the business transactions carried on by the respondents and none else. This it could have established in a variety of ways viz. (1) by adducing satisfactory proof to the effect that the place from which the secret books of accounts were seized formed part of the place of business of the respondents or was in their exclusive possession and control, (2) that the secret books of account were maintained by or under the orders of the respondents, (3) that the said books of account were in the handwriting of either of the respondents or their accountant, or clerk or some other person employed by them. Admittedly none of the documents marked as A-19 to A-23 was recovered from the premises of Nova. It is not the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of GSL having actually produced all the DTY or Twisted Yarn from out of non-duty paid POY supplied by Nova. No transporters documents have been seized or produced by the Department to show transport and sale of such huge quantities of POY from Nova to GSL or, even for that matter, from GSL to the buyers of DTY produced by GSL. No evidence has been forthcoming of purchase of raw materials by Nova for production of POY in such huge quantities, or of payments effected by GSL to Nova for the excess quantities of POY, clandestinely manufactured and cleared by Nova and sold to GSL, or even of payments made by the buyers of DTY from GSL made out of quantities alleged to have been purchased by GSL from Nova. The only basis of the demand is the figures contained in A/19 and A/21, seized from GSL premises, of which VN Parab is the author. Even if the figures in the seized documents tally (this is disputed by Nova, since VN Parab has not, when he was being examined during the investigation, stated that they tally), that by itself cannot prove clandestine manufacture and clearance, the tests for which have been adequately explained by this Tribunal in the decisions cited earlier, amongst sever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction, captive consumption and clearance of Polyester Chips and has not recorded for the entire production of Polyester Chips in the statutory records. Excess Polyester Chips have been captively consumed by Nova for further manufacture of POY which was further clandestinely cleared by them. According to the Revenue, the diaries were maintained by Ashok Chiripal in his own handwriting showing production and captive consumption of Polyester Chips. Excess production of Polyester Chips was recorded in these diaries. According to Nova, these diaries by themselves do not speak of any clandestine procurement of raw-materials, manufacture of Polyester Chips and excess production of Polyester Yarn. Inferences have been drawn from the entries made in these diaries without corroborating the same with any concrete evidence. Merely because Ashok Chiripal has stated that the entries mentioned in the diaries are true and pertains to the excess production of Polyester Yarn, would not be enough to fasten the liability upon Nova. There is no evidence of procurement of raw material i.e. Mono Ethylene Glycol (MEG) and Purified Terephtalic Acid (PTA) for the production of such a huge quantity of Polyes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by a person charged with any offence. Ashok Chiripal has not been charged with any offence which is in violation of the law in the present case. No show cause notice has been issued to him. The question of his statement being regarded as 'confession' does not, therefore, arise, because confession, by its very nature, has to be made by a person charged with breach of law. In fact, at the time of hearing, the ld. Special Counsel did not dispute the submissions made by the ld. Senior Advocate of Nova that there was no 'confession' by Ashok Chiripal. It was only his statement that has been relied upon. According to the submission made by the ld. Senior Advocate, who, once again relied heavily on the tests laid down by the Tribunal regarding the nature of evidence required to affirm a finding of clandestine manufacture and clearance, a very important consideration which failed to be appreciated by the Adjudicating Authority was that, in respect of the instant demand, there was no evidence whatsoever of the procurement of the required raw materials (MEG & PTA) for production of the alleged 1910587.5 Kgs of Polyester Chips in less than 6 months. Nor was there any evidence of actua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which has to be established in accordance with law laid down by the Tribunal in the long line of decisions, referred to by him while dealing with the earlier demand. In reply to the submissions made on behalf of Nova, the ld. Senior Special Counsel for the Revenue filed written submissions on 30.7.13 and explained the same. The Diaries had been maintained by Ashok Chiripal, showing production and consumption of polyester chips in Nova's factory from March 2002 to August 2002. The statement of Ashok Chiripal was not retracted by him, which stated that the figures were showing actual production of polyester chips by Nova and captive consumption thereof for manufacture of POY. A quantity of 17,69,298 kgs of polyester chips shown to have been transported were not entered in the Excise records. The statements of Vikram Oza and Nitin Patel, employees of Nova were to the effect that Nova was receiving PTA (one of the raw materials) which was not accounted for in the records. The ld. Special Counsel also showed us certain figures in the Diaries about production on 31.3.2002 and submitted that the records and the statements cannot be belittled. We have considered the rival submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been made to transporters. It was alleged that no clearances of degraded Polyester Chips/Polymer Waste took place, and they were consumed captively to manufacture POY which was cleared clandestinely. Reliance has been placed upon the statement of Pankaj Patel, Accounts Assistant and H K Jha. Again Ashok Chiripal's statement has been relied upon to conclude that Nova has never cleared degraded chips. According to the Show Cause Notice, in order to maintain input-output ratio, bogus invoices were issued by Nova showing clearances of degraded chips and waste. What was cleared was POY in the guise of such degraded chips/waste. The ld.Senior Advocate for Nova submitted that the allegation being that 1396923 Kgs of POY were manufactured and cleared clandestinely, it is inconceivable that there were no degraded chips or polymer waste arising during the manufacture of such a huge quantity of POY. The allegation is, itself, therefore, baseless. H K Jha had stated that degraded chips could be recycled. He had not where stated that degraded chips were actually recycled and issued for making POY. The stand of the Revenue that no degraded chips were ever manufactured and cleared, is without a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing officers, who stated that he did not know Nova. Further, in the 9 consignments referred to by the RTO, addresses were indicated in the invoices. Though the vehicle numbers were wrong, the Department made no efforts to verify from the addressee customers as to whether they received the goods or not. There is no evidence of consumption of degraded chips or polymer waste for actual production of 1396923 kgs of POY by Nova, nor of their removal from Nova or their buyers thereof. No monetary transactions dealing with such sale of POY by Nova have been found by the investigating agency or placed on record. The ld.Special Counsel for the Revenue has relied upon the statement of Ashok Chirpal made on 22.7.04, that he had never received in the State any degraded chips. All chips mentioned in his diary were good quality chips used for manufacture of yarn. However, this is controverted by the ld. Senior Advocate for Nova who pointed out that in his first statement made on 14.9.02, Ashok Chiripal had admitted the production of degraded chips during manufacture and their sale, and also produced two invoices evidencing their sale. Strangely enough, the first statement has been ignored by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 130 vehicles has been confirmed. In any event, this being a case of clandestine clearance, evidence thereof cannot be the mere incapacity of 9 vehicles (inferred from only the Vehicle No. indicated) out of 130 to carry the goods. Corroborative evidence of actual manufacture of POY and clearance to identified person or places and of payments made are some of the required conditions, which are not there in the case of the present demand, as in the earlier two demands. We, therefore, have no hesitation in holding that this demand has been made without any concrete or tangible evidence, and for the sole reason that no goods were sent out because the vehicle no. indicated was wrong. No attempt was made to find out from the parties to whom 130 consignments had been sent as to whether or not they received the goods. We accordingly, set aside the duty demand of Rs. 2,82,64,613/- confirmed against Nova, as being not substantiated. IV. The demand of duty of Rs. 10,07,06,323/- (of which a sum Rs. 9,77,62,573/- has been confirmed by the Adjudicating Authority, is based on the allegation that POY was illicitly cleared by Nova to EOUs against CT-3 Certificates with intent to evade payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s alleged by Nova, was not defective in demanding duty jointly and severally from Nova and the EOUs. He relied upon the definition of the term 'manufacture' under Section 2(f) of the Act and usage of the word 'person' in Section 11A thereof. In all the cases of EOUs, the demands have been confirmed on Nova, on the ground that no POY was transported/received by the EOUs. Though the Show Cause Notice demanded duty jointly or severally from Nova and the EOUs, demands have been confirmed only as against Nova. There is no demand of duty against the EOUs. The demands have been confirmed merely for the following reasons:- i) Some of the vehicles shown to have transported the goods were incapable of transporting the goods; ii) The goods to the EOUs outside Gujarat (Malegaon/Dhulia) were not, in fact, transported from Nova to the respective EOUs but were unloaded in or around Surat, and sold in domestic market. iii) Statutory documents like AR3A, CT-3 and Rewarehousing certificates are not relevant because the officers did not have to physically verify receipt of goods by the EOUs, as per Board Circular 88/98-Cus dated 2.12.98; iv) Only Delivery Challans could be proof of the deli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not 'strictly' binding, since Famous Textiles decision was in a stay application under Section 35F of the Act and not a final order under Section 35 thereof. The decision in Arvindh Steels Ltd is the subject matter of appeal filed by the Department which, according to the Adjudicating Authority, is pending before the Hon'ble High Court of Madras and is, therefore, not final in nature. The learned Senior Advocate submits that, while it is true that the decision in Famous Textiles case was passed in a stay application, the decision in Arvindh Steel Ltd is a final order passed by this Tribunal and the filing of an appeal does not affect the finality of the said decision. It is well recognized that the filing of an appeal does not automatically render the decision inapplicable. He relies upon the decision of the Hon'ble Supreme Court in Madan Kumar Singh v District Magistrate, (2009) 9 SCC 79 where it is held that mere filing of petition, appeal or suit would, by itself, not operate as stay until specific prayer in this regard is made and orders thereon are passed. It is, therefore, well established that unless the decision gets wiped out as a result of final decision of a higher foru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made with the brokers but it was found that no incriminating documents were available with them because the enquiries were twenty days after the search at Nova and the brokers anticipated the search of their premises. Strangely enough, the department did not consider it necessary to record any statement from the brokers whose names were found on the reverse of the Delivery Challans. The ld. Senior Advocate emphasized the fact that there is not even an iota of evidence of the goods having been sold in or around Surat as alleged in the Show Cause Notice and as confirmed by the learned Adjudicating Authority. No Transporter or broker has given evidence to this effect. Obviously, the unloading of the goods from the trucks cannot be on a public road. It has to be to some specified person at some premises of his. It is certainly not the case of the department that the goods were unloaded in the brokers premises or sold to the brokers. The entire matrix of the case on which the conclusion of the learned Adjudicating Authority is based, therefore, fails. More so, in cases where a wrong vehicle number was mentioned in the invoices. Since in these cases the learned Adjudicating Authority co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the EOU to the Range under their signatures/certification, the Central Excise officer was signing the re-warehousing certificates on that basis viz., record/document basis only. At no time were the consignments of indigenous origin physically verified, as per the Board's Circular. Thereafter, re-warehousing certificates were being dispatched, either weekly or fortnightly basis, to the jurisdictional Central Excise Officer of the consignor end. On being shown seized records/ files containing copies of AR-3As, in respect of clearances of Polyester Yarn made by Nova, and which have been duly re-warehoused by Central Excise Officers, in respect of the units falling under their charge, they confirmed their signatures appearing on the AR-3As (rewarehousing certificates). Copies of CT-3s, AR-3As & rewarehousing certificates and D-3 intimation were enclosed with the written submissions of the ld. Senior Advocate, which clearly show that the receipt of the goods is acknowledged by EOU in the D-3 intimation, which is one of the documents relied upon by the Central Excise Officers. For the learned Adjudicating Authority to say that the goods were not received in the EOU when a statut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich were warehoused in their premises and were used for further manufacturing purpose. The Adjudicating Authority has rejected these statements only on the ground that EOU customers had given details of the total quantity of yarn received and warehoused by them during the period but no specific information about the consignments received from Nova. This is a total mis-appreciation of evidence on the part of the Adjudicating Authority since the statements were recorded in the context of enquiry against Nova only. The total quantity shown as warehoused by some of the EOUs also included yarn received from Nova which were also duly recorded in the in-bond register as warehoused. Even in the proceedings before the Adjudicating Authority, some of the EOUs who had participated therein had contended that they had received the consignments of yarn from Nova and had duly accounted them in their register. The Adjudicating Authority has rejected this on the ground that the number of some of the vehicles written in the Delivery Challans were vehicles incapable of carrying them as there were no National Permits available for such trucks. It is also important that only 4.65% was involved in such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustified the order passed by the Adjudicating Authority in the present demand since, as per the report of the RTO, a number of vehicles shown to have been used to transport duty free goods under the CT-3 certificates were found to be incapable of carrying the same. It was corroborated by the statements of key persons of some of the EOUs. He further submitted that, in respect of some of the EOUs, enquiries reveal that they did not have enough plant and machinery to manufacture the final product from POY. He also submitted that the dealers of Nova were getting CT-3 certificates issued by the EOUs and giving them to the Surat office of Nova and goods were being sent by Nova without payment of duty against AR-3As. Such goods were off loaded at Surat and sold in the market. He further submitted that enquiries with transporters reveal that they never transported duty free goods to Malegaon and Dhulia (outside Gujarat) but off loaded the same in and around Surat. Some of the trucks did not have the permits to travel beyond Gujarat. He also submitted that on several delivery challans the names of agents of Surat are mentioned and the representatives of the EOUs admitted that duty free good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile passing the impugned order, has in the light of the statements of Inspectors in-charge of EOUs that physical supervision of receipt of goods by the EOUs had been dispensed with in terms of the CBEC Circular 88/98-Cus dated 2.12.98 in respect of clearance of goods made by the indigenous manufacturers as against importers, held that all the works relating to re-warehousing were based only on documents, and concluded that what would be relevant and conclusive in the present case would be the Delivery Challans. We have gone through the said Circular. The Circular is, no doubt, intended to liberalise the bonding procedures in respect of 100% EOUs by providing operational flexibility, by easing restrictions and removing practical difficulties being faced by such EOUs. It may be relevant, in this connection, to reproduce the said Circular in full, which is as under:- Export -Liberalisation of bonding procedure in respect of 100% EOUs The degree of supervision of the departmental officers on movement of raw materials, components, finished goods and manufacturing process and accounting of the same in an EOU has been under the review of the Board for some time. The board has since a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded from the sending unit immediately. (iv) Audit of the unit:- The presently sanctioned Cost Recovery Officers shall examine the records of the units and transactions undertaken by the unit at- least once in a month. The notification provides in regulation 11, that the Chief Commissioner may order special audit of the unit by a Cost Accountant (CA) nominated by him in this regard. Cost Auditor may be employed as a tool to check the correctness of raw material, quantity used, finished goods produced or other such situations. Before such approval, the Chief Commissioner may form a panel of CAs, fix the rate of the charges to be received by the said Cost Accountant. The names of the CAs and the details of the charges may be pre-notified at regular intervals. (v) It may be seen that while the latitude for manufacture and clearance and movement of raw materials and finished goods have been given to the EOUs, extra responsibility devolves on the cost recovery officers who are presently attached to the said units. There is no proposal at present for reduction or abolition of the said cost recovery posts. Wherever one officer has been assigned to more than one unit, the said officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relevancy of statutory records cannot, therefore be minimized by the department itself and pre-dominance be given to contractual documents like Delivery Challans issued by or between private parties. The reasoning of the Adjudicating Authority, that the Delivery Challan would outweigh the statutory records, is not sound. There is another vital fact, which is important to the present case. The Delivery challans according to the department did not show receipt of the goods in the EOUs. From this it is presumed that the goods were not received in the EOUs. According to the statements made by some transporters they were unloaded in or around Surat. This statement is as vague as it can ever be. There is no evidence that the goods were delivered to the dealer whose name was indicated on the reverse of the Delivery Challan. No transporter has stated this. Neither the dealer nor the person to whom it could have been handed over has signed it. In this connection, it is seen from the Show Cause Notice (para 13.13.2) that all transactions with EOUs were through Dealers. It was explained by Nova's Marketing Manager as under: 13.13.12 On being asked as to how they process the requirements o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preciate the inaction on the part of the Investigating Authority to get any clarification in this behalf from dealers, more so after having visited their premises and not found any incriminating materials. They have merely stated that no incriminating materials could be found because the dealers would have anticipated search of their premises since Nova had been searched 20 days earlier. Nothing precluded the authorities from recording the statements of dealers on how the transactions involved in the present case were handled by them, particularly in cases where their names figured on the reverse of the Delivery Challans. If the departments case is, as has been made out in the Show Cause Notice and as presented before us, that the dealers whose names appeared on the reverse of the Delivery Challans were to deal with the consignment covered by it and sell it in the local market, and that the goods instead of having been delivered in the EOU were unloaded in or around Surat where the named dealers are, the dealers so named would have clearly be in the know of what happened to the goods-whether they were at all received in or around Surat or whether they were in fact received in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ominant industries in Surat, it is difficult for us to conceive that clandestine activities of sales of such large magnitude could have taken place without coming to the notice of the Central Excise authorities. This is not a case where goods sent to an EOU were found being sold in the domestic market. There is no evidence of any sale and there has been no identification of even a single buyer. There being a conspicuous absence of evidence of actual diversion of the goods into the domestic market, transactions in such goods by named persons, and flow-back of funds, a demand as in the present case cannot be sustained on the basis of mere statements made by transporters of goods and that too, not of the drivers who transported the goods but of the owners of such company, who were not involved in the physical transport of the goods. To say the least, the impugned order is solely based on the statements which have no precise content. We have also noticed the contention raised by the department that some of the units did not have machineries like texturising/twisting machines fit enough to fullfil their export obligation. The impugned order takes note of this allegation in the Show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he basis of the aforesaid findings, we are constrained to set aside the demand of Rs. 9,77,62,573/-. 43. The learned Senior Advocate has also in his written submission raised the ground of limitation against the 4 demands in the present case, and that the Show Cause Notice dated 30.6.06 was time barred since the extended period of limitation could not apply in the facts of the present case. He had submitted that Nova had maintained all the statutory records wherein raw materials and inputs as well as finished products have been duly entered and final product, namely, POY has always been cleared on payment of duty under Central Excise Invoices as shown in the documents like RG-1, PLA and monthly returns which have all been examined and assessed by the Central Excise authorities. No specific finding has been recorded in the impugned order holding as to how the extended period of limitation was available to the revenue under the provisions of the proviso to Section 11A of the Act, which can be invoked only where suppression of facts, or willful misstatement, or collusion, or contravention of the provisions of the Act or the Rules with intent to evade payment of duty is proved on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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